Controlled Master Programmes for Indian Multinationals: IRDAI Compliance Issues

A Controlled Master Programme (CMP) is a global insurance structure in which a multinational's parent company purchases a master policy — typically covering property, casualty, directors and officers liability, or cyber — from a single lead insurer in the parent's home market. That master policy is then mirrored in each country where the group operates by a local admitted policy issued by a local insurer (often affiliated with or fronting for the master insurer). The local policy delivers primary coverage in the country; the master policy sits above it to catch coverage gaps, provide excess limits, and standardise terms across the group.

The appeal is straightforward. A large conglomerate with operations in 15 countries does not want 15 independently negotiated property policies with 15 different terms, 15 different exclusion sets, and 15 different claims processes. A CMP delivers consistent coverage philosophy across the group, consolidated renewal negotiation that drives premium efficiency, a single set of reporting obligations to the group risk function, and a master insurer who coordinates claims across jurisdictions.

For Indian multinationals — Tata Group, Mahindra & Mahindra, Aditya Birla Group, Wipro, HCL Technologies, JSW Group — this structure is operationally attractive as their international footprints have expanded rapidly. For foreign multinationals with Indian subsidiaries — global automotive OEMs, pharmaceutical companies, consumer goods brands — the CMP designed from their home-country perspective must accommodate India as a regulated subsidiary country.

The problem is that India's insurance regulatory regime does not accommodate the CMP structure cleanly. IRDAI's admitted insurance principle, its restrictions on premium flowing out of India to a foreign master policy, and FEMA's constraints on insurance-related remittances create a set of compliance problems that multinational risk managers must solve country by country. Getting India wrong in a CMP exposes the local subsidiary to operating without valid insurance, exposes the parent to regulatory sanctions under Indian law, and can void coverage precisely when a large loss occurs.

The foundational rule is stated clearly in the Insurance Act 1938 and reinforced in successive IRDAI regulations: insurance of property or interests in India can only be placed with insurers registered with IRDAI. Non-admitted insurance — coverage placed with a foreign insurer without IRDAI registration — is not merely unrecognised; it is unlawful for the Indian entity purchasing it and potentially creates criminal liability for the responsible officers.

Section 2C of the Insurance Act prohibits carrying on insurance business in India without an IRDAI certificate of registration. The courts have interpreted this broadly to mean that a foreign master policy covering Indian assets or Indian liabilities — even if the policy is issued offshore and the premium paid from the parent's account overseas — constitutes insurance business in India if it covers India-sited risks. An Indian subsidiary protected only by a foreign master policy, with no local admitted policy in place, is in violation of this principle.

The practical consequence for a CMP structure is that the local admitted policy is not optional. Every India-sited risk in the group must be covered by an IRDAI-registered insurer, with a premium computed on the Indian risk base and collected in India. The master policy can still exist as the top layer, but it cannot substitute for the local policy.

Penalties for non-admitted insurance under the IRDAI Act are significant. Section 34C of the Insurance Act allows IRDAI to cancel the insurer's registration (for registered insurers in breach) and to impose financial penalties. For corporate policyholders operating with non-admitted coverage, the risk is that a loss event triggers investigation of the coverage arrangements, the non-admitted policy is found to be void, and the Indian subsidiary has no enforceable claim. The reputational and financial exposure of that scenario is the real incentive for compliance.

The IRDAI (Insurance Products) Regulations 2024, effective from April 2024, consolidated earlier product-specific regulations and maintained the admitted insurance requirement while introducing some flexibility in reinsurance cession that is relevant to CMP structuring.

Even if an Indian company wanted to pay premium to a foreign master insurer directly — accepting the non-admitted insurance risk — FEMA (Foreign Exchange Management Act 1999) creates a parallel obstacle. FEMA governs all outward remittances of foreign exchange from India, and insurance premium remittances to foreign insurers fall within its scope.

The RBI Master Direction on Liberalised Remittance Scheme and the current account transaction rules permit certain insurance premium remittances under specific circumstances. Individuals can remit premium for life insurance policies purchased from foreign insurers under the LRS limit (USD 250,000 per financial year per resident individual). However, corporate remittances of premium to foreign insurers for covering India-sited risks do not benefit from LRS and require specific RBI or government approval.

The practical position is that an Indian subsidiary cannot legally pay premium to a foreign master insurer for coverage of its Indian operations without either going through an IRDAI-registered fronting insurer or obtaining a specific exemption. Neither route is straightforward at scale.

The RBI's external commercial borrowings (ECB) framework is sometimes invoked by multinationals who structure the premium as a cost allocation from the parent rather than an insurance premium remittance. This creates a separate set of transfer pricing and thin-capitalisation complications, and does not resolve the admitted insurance problem — the Indian risk is still not covered by an IRDAI-registered policy.

The interaction between FEMA and IRDAI rules means that compliance requires solving two separate regulatory problems simultaneously: the insurance coverage must be admitted (IRDAI requirement) and the premium flows must be properly authorised (FEMA/RBI requirement). A CMP structure that satisfies one without satisfying the other remains non-compliant.

The CMP compliance problem is symmetric. Just as an Indian multinational's outbound investments need local admitted policies in each host country (with the Indian group master coordinated from India), a foreign multinational's Indian subsidiary faces the same structural problem from the other direction.

A German automotive OEM, a Swiss pharmaceutical company, or a US technology firm operating in India will design its global CMP from its home market. The global risk manager's instinct is to include the Indian subsidiary under the master policy issued by, for example, Zurich Germany or AIG US. The Indian subsidiary's assets, business interruption exposure, and liability risks are then technically covered under the master policy.

The problem is that this structure is non-admitted in India. The Indian subsidiary of the foreign multinational must purchase local policies from IRDAI-registered insurers for its India-sited risks. The foreign master can sit above the Indian local policies as an excess layer or to cover coverage gaps (the DIC/DIL function described below), but it cannot substitute for the Indian local policy.

Where foreign multinationals most commonly go wrong is in casualty lines. A foreign multinational's global general liability or employers' liability policy issued in the US or UK is not admitted in India. If the Indian subsidiary relies on this policy for its liability coverage without also maintaining local admitted general liability and workmen's compensation policies with IRDAI-registered carriers, the subsidiary is uninsured for Indian liability purposes. Under the Workmen's Compensation Act 1923 and the Employees' Compensation Act 1923 (amended multiple times since), employers' liability cover is mandatory in India, and reliance on a foreign policy does not satisfy this obligation.

The Difference in Conditions (DIC) and Difference in Limits (DIL) coverage function is the mechanism through which the master policy in a CMP provides value over and above the local admitted policies. DIC fills the gap where the local policy excludes a peril that the master covers. DIL fills the gap where the local policy limit is exhausted and the master provides excess capacity.

In a compliant CMP structure for India, the DIC/DIL function of the master policy covers only the difference between what the Indian local policy provides and what the master policy standard provides. The master does not directly insure any India-sited risk for which the Indian local policy also responds; it covers only the incremental gap.

The compliance mechanism works as follows. The Indian subsidiary maintains a local admitted property policy with an IRDAI-registered insurer (ICICI Lombard, Bajaj Allianz, HDFC Ergo, New India Assurance, or others). This policy covers the Indian assets at agreed terms. The master policy, issued by the parent's global insurer in the parent's home country, covers DIC/DIL on a non-India basis — meaning it does not purport to be an insurance policy in India and does not cover India-sited risks on a standalone basis. If a loss exceeds the Indian policy limit or falls within an Indian policy exclusion, the master policy pays the difference.

The compliance risk in this structure arises when the master policy's DIC/DIL clause is drafted broadly enough that it could be interpreted as providing primary coverage to the Indian subsidiary. IRDAI's examiners, when reviewing foreign multinationals' insurance arrangements during the IRDAI inspection process under Regulation 3 of the IRDAI (Inspection, Audit and Penalty Regulations), have challenged DIC/DIL structures where the master policy was the de facto primary insurer.

Best-practice structuring requires:

• The Indian local policy to be placed with an IRDAI-registered insurer with genuine risk transfer, not a fronting arrangement where the local insurer immediately cedes 100% to the foreign master insurer without retaining any meaningful risk.
• The master policy's DIC/DIL clause to be drafted with a clear India carve-in that makes explicit the local policy's primary role and the master's gap-only function.
• Transfer pricing documentation between the parent and the Indian subsidiary for any cost allocation of master programme premiums to be arm's-length and consistent with OECD guidelines applied under the Indian Income Tax Act, to avoid a challenge that the premium allocation is an undisclosed royalty or service fee.

The major Indian conglomerates — Tata, Mahindra, Aditya Birla, JSW, Godrej, Wipro — have each developed CMP structures tailored to their operational footprints and the regulatory constraints of the countries they operate in. Three structural patterns are commonly observed.

Pattern 1: IRDAI-licensed Indian insurer as programme coordinator. The Indian conglomerate places its master policy with an IRDAI-registered insurer (typically a large private general insurer with an international reinsurance network). The Indian insurer acts as the lead insurer for the global programme and fronts the master policy. It then cedes risk to international reinsurers through its reinsurance arrangements. Local admitted policies in each host country are issued by the lead insurer's network partners or by local carriers approved by the lead insurer. The Indian parent pays a consolidated programme premium in India, which is then distributed to local market carriers through the reinsurance chain. This pattern avoids FEMA outward remittance issues because the premium stays in India at the first link in the chain.

Pattern 2: Dual-layer structure with GIFT City coordination. The Indian conglomerate establishes a captive insurer or an intermediate holding company in GIFT City's IFSCA jurisdiction. The GIFT City entity purchases the global master policy from an international insurer. Indian operations are covered by local IRDAI-admitted policies, and the DIC/DIL gap function is held in the GIFT City entity. Premium flows from Indian subsidiaries to the GIFT City entity are treated as intra-group service charges under a documented cost-sharing agreement, avoiding the direct insurance premium remittance issue. IFSCA regulations permit GIFT City insurance entities to hold international reinsurance contracts, making this a genuinely functional solution.

Pattern 3: Line-of-business segregation. For conglomerates where a fully coordinated CMP is operationally impractical, the Indian operations and the international operations are insured under separate programmes with no formal link. The Indian entity places purely domestic admitted policies with IRDAI-registered carriers. The international subsidiaries are covered under a separately purchased international programme, with no master policy that purports to cover India. This pattern forfeits the premium consolidation and coverage consistency benefits of a true CMP but is the simplest to keep compliant.

The International Financial Services Centres Authority (IFSCA) at GIFT City, Gandhinagar, has been positioning itself as the natural coordination platform for Indian multinational CMPs since the enactment of the IFSCA Act 2019 and the progressive build-out of insurance and reinsurance regulations since 2020.

The IFSCA insurance framework permits foreign and Indian insurers, reinsurers, and intermediaries to operate within the GIFT City SEZ in USD and other foreign currencies, outside IRDAI's domestic regulatory perimeter. An insurer with an IFSCA licence can write non-India risks, hold global reinsurance contracts, and operate as the international node of a multinational group's insurance programme.

For Indian conglomerates, the GIFT City entity serves as the international programme owner. The master policy for the global programme is issued by or to the GIFT City entity. Local admitted policies in each country (including India) are issued by country-licensed insurers. The DIC/DIL gap function sits with the GIFT City entity. Premium from overseas subsidiaries flows to GIFT City in USD without the FEMA complications that would arise if premium flowed directly to India's domestic insurance market.

IFSCA Circular No. IFSCA/INS/2022-23 and subsequent circulars have clarified that IFSCA-licensed insurers can act as fronting entities for international insurance programmes, hold master policies for Indian multinational groups, and cede to international reinsurance markets.

The limitation of the GIFT City approach is that Indian domestic risks must still be covered by IRDAI-admitted policies. The GIFT City entity cannot directly insure risks located in India. It can hold the excess/DIC layer above the Indian local policies, coordinate the global programme, and hold reinsurance, but the primary coverage for Indian assets and liabilities must go through the domestic market. For Indian conglomerates with a large India risk base, the GIFT City structure reduces but does not eliminate domestic market engagement.

The claims dimension of a CMP reveals whether the structure was designed for functionality or merely for premium consolidation. When a loss spans multiple countries — an Indian manufacturing conglomerate that has simultaneous fire losses at its Indian plant and its Tanzanian plant during the same period — the CMP structure must clearly allocate which policy responds, in what sequence, and how the two claims are coordinated.

The standard CMP claims protocol for a compliant India structure operates as follows.

For an India-sited loss, the Indian subsidiary notifies its local IRDAI-admitted insurer first. The claim is adjusted under the local policy. The local insurer (who may have a back-to-back reinsurance arrangement with the master programme's lead insurer) processes and settles the claim up to the local policy limit. If the loss exceeds the local policy limit, or if the local policy excludes the peril, the excess or gap is notified to the master programme's lead insurer as a DIC/DIL claim. The claims team at the master level reviews the gap and settles the DIC/DIL portion separately. Coordination between the local adjuster and the master programme adjuster is essential.

For an overseas-sited loss (a Tata group subsidiary in South Africa, for example), the local South African admitted policy responds first. The master programme covers any gap or excess. The master programme's lead insurer manages the overall settlement.

The practical complications that arise include:

• Currency of settlement: the Indian local claim settles in INR; the master DIC/DIL claim may settle in USD. For accounting purposes, the group must manage the exchange rate exposure on the master DIC/DIL recovery.
• Surveyor coordination: the local insurer appoints a surveyor under the local policy; the master insurer may appoint an independent surveyor for the DIC/DIL portion. Conflicting surveyor assessments of the same loss are more common than risk managers expect and require escalation to a joint assessment protocol agreed in advance.
• Subrogation: when the loss is caused by a third party (a contractor fire, an equipment failure), the local insurer has the subrogation right on the local policy recovery. The master insurer has the subrogation right on the DIC/DIL recovery. Coordinating subrogation against the third party to avoid duplication or gaps requires a subrogation protocol in the programme documentation.